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cpa2010
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| Posted: 08 Jul 2010 at 17:07 | IP Logged
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1)
Quinn Co. reported a net deferred tax asset of $9,000 in its December 31, 1993, balance sheet. For 1994, Quinn reported pretax financial statement income of $300,000. Temporary differences of $100,000 resulted in taxable income of $200,000 for 1994. At December 31, 1994, Quinn had cumulative taxabledifferences of $70,000. Quinn's effective income tax rate is 30%. In its December 31, 1994, income statement, what should Quinn report as deferred income tax expense?
a. $12,000
b. $21,000
c. $30,000
d. $60,000
ans is c
can anybody explain this
2)
Kent, Inc.'s reconciliation between financial statement and taxable income for 1993 follows:
Pretax financial income $150,000
Permanent difference (12,000)
138,000
Temporary difference-depreciation (9,000)
Taxable income $129,000
Additional information:
At
12/31/92 12/31/93
Cumulative temporary differences (future taxable amounts) $11,000 $20,000
The enacted tax rate was 34% for 1992, and 40% for 1993 and years thereafter.
In its December 31, 1993, balance sheet, what amount should Kent report as deferred income tax
liability?
a. $3,600
b. $6,800
c. $7,340
d. $8,000
ans is d
can anybody explain this cumulative concepts for i.tax
3)
Dunn Trading Stamp Co. records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Dunn's past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Dunn's liability for stamp redemptions was $6,000,000 at December 31,1988. Additional information for 1989 is as follows:
Stamp service revenue from stamps sold to licensees $4,000,000 Cost of redemptions (stamps sold prior to 1/1/89) 2,750,000 If all the stamps sold in 1989 were presented for redemption in 1990, the redemption cost would be $2,250,000. What amount should Dunn report as a liability for stamp redemptions at December 31, 1989?
a. $7,250,000
b. $5,500,000
c. $5,050,000
d. $3,250,000
ans is c
pls help ... thanks in advance
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1tryCPA
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| Posted: 08 Jul 2010 at 20:11 | IP Logged
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Question #1:
DTA 9,000 12/31/1993 start point
at the end of the year cumulative taxable differences $70,000: DTL should be 70,000 *30% tax rate = $21,000.
Deferred tax expense = changes in DTA and DTL during the period.
To get from 9,000 asset to 21,000 liability, tax expense should be 30,000.
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1tryCPA
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Question #2:
The question asks about DTL at the end of 12/31/93. DTL or DTA are recognized only for future temporarily differences, so we ignore 1992 data.
Then, DTL for 12/31/93 should be based on cumulative differences at the year end. 20,000 * 0.40 =8,000.
My understanding that the balance at the end of the year for DTL or DTA are based on cumulative differences if they are given. If differences are given by years, then, we need to calculate changes for each year.
If in this question, there was only data for 1992 w/out any cumulative differences, you would base your calculations on 9,000 temporarily difference.
I usually do JEs for all situations. Helps a lot for me.
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1tryCPA
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Question #3:
Liability balance CR 6,000,000
cost of redemption : D liability $2,750,000
If all stamps are presented for redemption cost would be 2,250,000 - potential liability. As usually only 80% are presented, liability should be 1,800,000 CR to liability. Balance is 5,050,000 CR
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ngbrian85
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1tryCPA wrote:
Question #1:
DTA 9,000 12/31/1993 start point
at the end of the year cumulative taxable differences $70,000: DTL should be 70,000 *30% tax rate = $21,000.
Deferred tax expense = changes in DTA and DTL during the period.
To get from 9,000 asset to 21,000 liability, tax expense should be 30,000.
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How do you know that the $21,000 is a DTL from first glance ? when I computed this the first time, I treated it like a DTA.
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Topic: Accounting for Income tax
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